Managing cash flow effectively is crucial to building a thriving small business. When you have a clear plan for managing incoming and outgoing funds, you can confidently cover payroll, restock inventory, pay bills and seize new opportunities—all without unnecessary stress.
A Xero survey of American small business owners highlighted the personal toll a cash flow crunch can have. In the survey, we found that as many as 45% of small business owners had to sacrifice their own pay check to make ends meet and 22% were unable to pay bills. As many as 84% said they were stressed about cash flow.
What you need to know
- Connect your business checking account to your accounting software so you can track cash flow in real time.
- Optimize and automate payment scheduling based on your cash flow fluctuations.
- Plan for the future with an emergency fund and online cash flow forecasting tools.
So how can you effectively manage your money to ensure your business stays resilient and positioned for success? We’ve got five tips to help you feel in control of your cash flow.
1. Watch your numbers in real time
The more you know about your cash flow, the better decisions you can make. When you connect your business bank account with online accounting software like Xero, you can track income and expenses in real time, and get instant visibility into your financial health through dashboards that update with the latest data—sales, invoices, bank balances, and more.
Instead of waiting until the end of the month to review your books, you can stay proactive: spotting trends, planning ahead, and making adjustments before challenges arise.
2. Automate invoicing and follow ups
Late payments from customers are one of the biggest contributors to cash flow crunches for small businesses.
Automating your invoicing and payment reminders can help you get paid on time. Offering multiple ways to pay—including online payment options, accepting debit cards and credit cards, and the use of Apple Pay and Google Pay—can make it easier for customers to pay you, speeding up your collections process.
3. Optimize payment timing
The timing of your outgoing payments is just as important as getting paid on time.
If you pay your bills late, you could rack up fees or damage vendor relationships. Consider scheduling payments strategically, taking advantage of any early payment discounts when possible, and delaying larger expenditure to coincide with stronger cash flow.
Online banking platforms can help automate and optimize your payment schedule to align with your cash flow cycle. You can negotiate terms with suppliers that best suit your revenue cycles, too—for example, paying in installments rather than lump sums.
4. Build a cash reserve for unexpected expenses
Even the most well-run businesses face financial surprises. A major client might delay payment, equipment could break down, or an unexpected opportunity could arise that requires quick capital.
Having a cash reserve can be a lifesaver. The ‘right’ amount to set aside will vary from business to business, but a general rule of thumb is to set aside about 3–6 months’ worth of operating expenses. If you are forecasting your cash flow, you’ll be able to see how much your monthly expenses are and set the right sum for your business.
If cash reserves are tight, consider financial tools that provide fast, flexible funding to bridge short-term gaps.
5. Project your future flow
Online accounting software usually provides cash flow forecasting tools, which can help you anticipate future shortfalls and plan accordingly. For example, Xero’s cash flow forecasting tools visualize your cash flow and help you drill into the details of your projection, such as invoices and bills due. This means you can easily see where you stand now and the impact certain decisions will have on your cash flow.
The result? More efficiencies in your business, and more confidence in your decisions.
Achieving cash flow confidence
Managing cash flow effectively isn’t about reacting to financial challenges—it’s about proactively using the right strategies and tools to stay ahead. By leveraging real-time accounting platforms and modern online banking solutions, you can keep your business liquid, agile, and ready for whatever comes next.
See how Bluevine and Xero can work together to elevate your business.
Bluevine Business Checking customers with the Standard plan can get Xero free for 3 months, and Plus or Premier customers can get Xero free for 6 months. Terms and conditions apply.
Xero is a global small business platform with 4.2 million subscribers. Xero’s smart tools help small businesses and their advisors to manage core accounting functions like tax and bank reconciliation, and complete other important small business tasks like payroll and payments. Xero’s extensive ecosystem of connected apps and connections to banks and financial institutions provides a range of solutions from within Xero’s open platform to help small businesses run their business and manage their finances more efficiently.
